London close: Stocks negative as US-China relationship deteriorates

London stocks finished in negative territory on Friday, as it emerged that business activity in the UK grew at its fastest pace in five years in July, amid concerns about escalating tensions between the US and China.

The FTSE 100 ended the session down 1.41% at 6,123.82, and the FTSE 250 was 1.28% weaker at 17,264.84.

Sterling was stronger against both of its major trading pairs, last rising 0.37% on the dollar to $1.2788, and managing gains of 0.05% against the euro to €1.0992.

“The situation between the US and China has been brewing recently,” said CMC Markets analyst David Madden.

“Tensions have been on the rise in relation to Hong Kong – as the Chinese government is tightening its control over the region.

“This week, the US government closed a Chinese consulate in Houston, and as a response, the Chinese government ordered the US consulate in Chengdu to close.”

Madden said US Secretary of State Mike Pompeo had added to the mix, after calling on America’s allies to end the “blind engagement” with China.

“The politician was critical of the Beijing administration and traders are running scared as they fear a further deterioration of the relationship between the two nations is on the cards.

“Earlier in the week, the FTSE 100 was above 6,300 and the DAX 30 was north of 13,000, so dealers have been quick to trim their exposure to stocks.”

There was some good news on home turf, as the latest figures from the Office for National Statistics showed that retail sales continued to recover in June as non-essential shops reopened amid the lifting of coronavirus restrictions.

Retail sales rose 13.9% on the month following a revised 12.3% increase in May, beating expectations of an 8% jump.

On the year, retail sales were down 1.6% in June, which was a big improvement on the 12.9% decline seen in May and better than expectations of a 6.4% fall.

Meanwhile, IHS Markit’s preliminary composite output index - which measures activity in services and manufacturing - rose to 57.1 from 47.7 in June, beating expectations for a reading of 51.1 and marking the fastest growth since June 2015.

The reading was also above the 50.0 level that separates contraction from expansion for the first time since February and well above the record low of 13.8 seen in April.

Services PMI pushed up to a 60-month high of 56.6 in July from 47.1 in July, while the manufacturing PMI rose to a 16-month high of 53.6 from 50.1.

“The UK economy started the third quarter on a strong footing as business continued to reopen doors after the Covid-19 lockdown,” said Chris Williamson, chief business economist at IHS Markit.

“The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter."

In equity markets, Vodafone fell 4.65% after it said first-quarter organic service revenue declined 1.3%, with total revenue down 1.4% to £10.5bn.

The company also announced that it plans to list its towers infrastructure business in Frankfurt early next year.

Education publisher Pearson lost 0.98% after saying it swung to a first-half loss due to the impact of the coronavirus, but that it expects to deliver adjusted operating profit broadly consistent with expectations.

Cineworld tumbled 14.28% after Disney said it was delaying the release of the Mulan and Spiderman films indefinitely and pushing back the release of the Star Wars and Avatar films by a year.

On the upside, plumbing and heating supplies group Ferguson rallied 1.72% after it said trading had improved steadily since the height of coronavirus lockdowns in April.

Centrica surged 16.41% as the British Gas owner said it was selling its US energy business to NRG Energy for $3.6bn (£2.87bn) as part of a plan to turn the company around.

It also reported a half-year loss of £135m due to the coronavirus pandemic as it took a one-off charge of £1bn.

Engineer IMI gained 6.76% after it posted a jump in interim profit, thanks in part to a temporary surge in demand for ventilator parts due to the coronavirus pandemic, and said it was reinstating its full-year dividend.

Market Movers

FTSE 100 (UKX) 6,123.82 -1.41%
FTSE 250 (MCX) 17,264.84 -1.28%
techMARK (TASX) 3,760.34 -2.19%

FTSE 100 - Risers

Johnson Matthey (JMAT) 2,306.00p 2.13%
Ferguson (FERG) 7,018.00p 2.09%
Pennon Group (PNN) 1,075.50p 2.04%
Tesco (TSCO) 220.20p 1.94%
Morrison (Wm) Supermarkets (MRW) 188.10p 1.81%
Whitbread (WTB) 2,292.00p 1.19%
United Utilities Group (UU.) 882.20p 1.15%
Sainsbury (J) (SBRY) 191.70p 0.89%
Imperial Brands (IMB) 1,400.50p 0.72%
RSA Insurance Group (RSA) 441.10p 0.64%

FTSE 100 - Fallers

M&G (MNG) 163.45p -5.63%
Ocado Group (OCDO) 2,062.00p -5.37%
International Consolidated Airlines Group SA (CDI) (IAG) 198.65p -4.77%
Vodafone Group (VOD) 122.70p -4.74%
Prudential (PRU) 1,151.00p -4.32%
JD Sports Fashion (JD.) 598.80p -4.31%
Smith & Nephew (SN.) 1,611.00p -3.76%
Melrose Industries (MRO) 105.05p -3.54%
Legal & General Group (LGEN) 216.50p -3.43%
Taylor Wimpey (TW.) 130.00p -3.17%

FTSE 250 - Risers

Centrica (CNA) 47.14p 16.77%
IMI (IMI) 1,080.00p 7.36%
Petropavlovsk (POG) 39.50p 7.34%
Helios Towers (HTWS) 153.20p 4.36%
Tate & Lyle (TATE) 676.40p 2.61%
Vivo Energy (VVO) 75.70p 2.30%
TBC Bank Group (TBCG) 777.00p 2.24%
Drax Group (DRX) 277.00p 2.21%
Hochschild Mining (HOC) 268.60p 2.05%
PPHE Hotel Group Ltd (PPH) 1,085.00p 1.88%

FTSE 250 - Fallers

Cineworld Group (CINE) 45.45p -14.28%
Airtel Africa (AAF) 59.40p -7.19%
Trainline (TRN) 405.00p -6.64%
Aston Martin Lagonda Global Holdings (AML) 49.52p -6.48%
National Express Group (NEX) 149.30p -6.45%
Equiniti Group (EQN) 138.80p -6.22%
Spirent Communications (SPT) 254.50p -5.39%
Network International Holdings (NETW) 436.60p -5.37%
Chemring Group (CHG) 231.50p -5.12%
Kaz Minerals (KAZ) 542.40p -5.04%